UNIVERSAL ELECTRONICS INC 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We generally discuss 2022 and 2021 items and year-to-year comparisons between 2022 and 2021 in the section that follows. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 4, 2022. The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document. Overview We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, security, home automation, climate control, and home appliance markets. Our product and technology offerings include: • easy-to-use, voice-enabled, automatically-programmed universal remote controls with two-way radio frequency ("RF") as well as infrared ("IR") remote controls, sold primarily to video service providers (cable, satellite, Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers, and private label customers; • integrated circuits ("ICs"), on which our software and universal device control database is embedded, sold primarily to OEMs, video service providers, and private label customers; • software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver home entertainment, smart home services and device or system information; • cloud-services that support our embedded software and hardware solutions (directly or indirectly) enabling real-time device identification and system control; • intellectual property that we license primarily to OEMs and video service providers; • proprietary and standards-based RF sensors designed for residential security, safety and home automation applications; • embedded and cloud-enabled software for reliable firmware update and digital rights management validation services to major consumer electronics brands; • wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators; and • AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas. A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge. Each year our device control library continues to grow across AV and smart home platforms, supporting many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control. Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired Consumer Electronics Control ("CEC") and wireless IP control protocols commonly found on many of the latest HDMI and internet connected devices. Our proprietary software automatically detects, identifies and enables the appropriate control commands for many home entertainment and automation devices in the home. Our libraries are continuously updated with device control codes used in newly introduced AV and Internet of Things ("IoT") devices. These control codes are captured directly from original control devices or from the manufacturer's written specifications to ensure the accuracy and integrity of the library. We operate as one business segment. We have one domestic subsidiary and 25 international subsidiaries located in Brazil, British Virgin Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (the "PRC") (7), Singapore, Spain, United Kingdom and Vietnam. 30 Table of Contents To recap our results for 2022: • Net sales decreased 9.8% to $542.8 million in 2022 from $601.6 million in 2021. • Our gross profit percentage decreased to 28.1% in 2022 from 28.8% in 2021. • Operating expenses, as a percent of sales, increased to 25.4% in 2022 from 24.9% in 2021. • Operating income decreased to $14.5 million in 2022 from $23.3 million in 2021, and our operating margin percentage decreased to 2.7% in 2022, compared to 3.9% in 2021. • Our effective tax rate increased to 96.4% in 2022 from 67.0% in 2021. Our strategic business objectives for 2023 include the following: • increase new product development efforts in high-growth HVAC OEM channel to grow our market penetration with existing customers and acquire new customers with the goal of achieving market share leadership in climate control channel within 2 years; • broaden our home control and home automation product solutions with the aim of acquiring new customers that represent market share leaders in their respective channels and regions; • expand our software and service platform, QuickSet, to deliver a complete smart entertainment and smart home managed service platform; • invest in creating sustainable technology solutions that offer product differentiation across our global product portfolio; • explore and expand product offerings in our core subscription broadcasting channel beyond traditional entertainment remote controls; • seek acquisitions or strategic partners that complement and strengthen our existing business; and • expedite our long-term factory planning strategy to optimize our manufacturing footprint and reduce our manufacturing concentration in the PRC. We intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements. COVID-19 Pandemic and Supply Chain Impact The COVID-19 pandemic, including related measures to curtail its spread, continues to be a complex and evolving situation and has and will continue to impact our business, operations, and financial results. We anticipate that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact business activity across the globe, including our business. We expect our sales demand to be negatively impacted into, at least, the first half of 2023 given the global reach and economic impact of the COVID-19 pandemic and the various governmentally imposed lockdowns, quarantine and social distancing measures put in place to contain the spread of the COVID-19 pandemic. A future suspension of our manufacturing operations would impact our ability to meet customer demand and could have a significant adverse effect on our financial conditions and results of operations. COVID-19 also continues to impact the global supply chain causing disruptions to service providers, logistics and the flow and availability of supplies and products. Our manufacturing sites, as well as our suppliers and outsourcing partners, and our supply chain have been adversely and may continue to be adversely impacted as a result of restrictions and logistics and operational challenges related to COVID-19. These disruptions have resulted and may continue to result in supply shortages and delays impacting sales worldwide. We may experience further disruptions to our manufacturing operations, supply chain and/or distribution channels in the future, and these disruptions may be prolonged. We have also been negatively impacted by supply chain difficulties including obtaining ICs and other long-lead time components and we expect this to continue into 2023. While we are taking production and inventory control steps to mitigate the effects caused by these shortages including advanced purchasing of long-lead time components, we cannot guarantee that these steps will allow us to meet our short-term IC and other component parts needs. As such, these supply constraints continue to cause difficulty and delays in our ability to fulfill customer orders and have at times resulted in increased logistics costs. In addition, many of our products are paired with certain of our customers' products, like set-top boxes or televisions. If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease. 31 Table of Contents Macroeconomic Conditions We have been negatively impacted and we expect to continue to be negatively impacted by adverse macroeconomic conditions, in particular reduced consumer spending. Inflation has increased our component and logistics costs. While we have been able to increase sales prices on certain products, there may be a delay in our ability to increase prices and we may not be able to fully offset the impact of increased material costs which would negatively impact our gross profit. Our cost of labor, materials and borrowing may continue to increase which would negatively impact our business and financial results. In addition, we expect recessionary fears in the global economy will ultimately negatively impact our sales demand. Qinzhou, China Facility In October 2021, Reuters published an article indicating that individuals from China's Uyghur minority, originally resident in the PRC region of Xinjiang, were working in a facility in Qinzhou, Guangxi operated by our Chinese subsidiary, Gemstar Technology (Qinzhou) Co. Ltd. ("Gemstar"). The article alleged that the presence of these workers in Guangxi was indicative of "a transfer program described by some rights groups as forced labor." We have reviewed and confirmed that Gemstar compensated these individuals for their work at the same rates as workers of other ethnicities who had comparable skills and roles, and at a level that was above the local minimum wage. Although our review did not identify any instances in which individuals were obliged or in any other way forced to work at the Qinzhou facility or were paid less than their promised wage, Gemstar, which engaged these workers through a third-party labor agency, terminated its relationship with that agency, ended its arrangement with these workers, and paid all outstanding wages and severance directly and individually to each of the workers in question. Nonetheless, the perception that we or an entity affiliated with us might have had associations with a program described by some as involving forced labor could result in reputational damage as well as lost revenue. To date, as a result of this perception, one customer has put further business with us on hold. Should additional customers cease doing business with us, the loss of revenue could become material, which would have an adverse effect on our business, results of operations and financial condition. We take all allegations regarding working conditions seriously, and took a cooperative approach to responding to the Committee's letter, cooperated fully with the Committee's inquiry and provided the Committee with timely and complete responses to all of its questions. Manufacturing Footprint We expect to commence manufacturing operations in a new factory in Vietnam in the first half of 2023, which may result in manufacturing inefficiencies. We are currently evaluating our manufacturing footprint with the expectation that once the Vietnam factory is operating efficiently, we will reduce our manufacturing capacity, most likely, by shutting down an existing facility. If this were to occur, we would record an impairment charge and severance expense in amounts that are not presently calculable, however could be material. We are analyzing various scenarios, each contingent on the success of the new Vietnam factory, and have yet to conclude on a specific plan. Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation, impairment of long-lived assets, intangible assets and goodwill and income taxes. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available. Any adjustment may be significant and may have a material impact on our consolidated financial statements. An accounting estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. Management believes the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. In addition to the accounting policies mentioned below, see "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for other significant accounting policies. 32 Table of Contents Revenue recognition Revenue is recognized when control of a good or service is transferred to a customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service. Revenues are generated from manufacturing and delivering universal control, sensing and automation products and AV accessories, which are sold through multiple channels, and licensing intellectual property that is embedded in these products or licensed to others for use in their products. We also generate revenues from a cloud-based software solution enabling software updates, digital rights management provisioning and remote technical support to consumer electronics customers. Timing of Revenue Recognition – When determining the classification of over time verses point in time revenue recognition, there is significant judgment exercised by management in identifying and evaluating whether new contracts and/or products meet the criteria for over time or point in time revenue recognition. Significant judgments include the evaluation of legal terms and rights within each jurisdiction that we operate, specifically as it relates to our entitlement to gross margin at termination, and the evaluation of whether it is possible, contractually or economically, to repurpose or redirect products. Royalty Revenue – We license our symbolic intellectual property which includes our patented technologies and database of control codes. Royalty revenue is recognized for these licensing arrangements on an over time basis. We record license revenue for per-unit based licenses when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment. The number of shipped units is estimated based on historical royalty revenue and other known factors. If actual shipped units differ from our estimates we will record a reduction or increase to net sales in the period the actuals are reported by the licensee, typically in the following quarter. Sales Returns and Allowances – A provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded. These estimates are based on historical sales returns and allowances, analysis of credit memo data and other known factors. Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net sales in the period in which we make such a determination. Sales Discounts and Rebates – A provision is recorded for estimated sales discounts and rebates and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded. We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers. Changes in such accruals may be required if actual discounts and rebates differ from our estimates. Inventories Our finished good, component part, and raw material inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. We write down our inventory for the estimated difference between cost and estimated net realizable value based upon our best estimates of future demand and market conditions. We carry inventory in amounts necessary to satisfy our customers' inventory requirements on a timely basis. We continually monitor our inventory status to control inventory levels and write down any excess or obsolete inventories on hand. If actual market conditions become less favorable than those projected by management, additional inventory write-downs may be required, which may have a material impact on our financial statements. Such circumstances may include, but are not limited to, the development of new competing technology that impedes the marketability of our products or the occurrence of significant price decreases in our raw material or component parts, such as integrated circuits. Each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $1.5 million. 33 Table of Contents Valuation of Long-Lived Assets and Intangible Assets We assess long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors considered important which may trigger an impairment review, if significant, include the following: • underperformance relative to historical or projected future operating results; • changes in the manner of use of the assets; • changes in the strategy of our overall business; • negative industry or economic trends; • a decline in our stock price for a sustained period; and • a variance between our market capitalization relative to net book value. If the carrying value of the asset is larger than its projected undiscounted future cash flows, the asset is impaired. The impairment is measured as the difference between the net book value of the asset and the asset's estimated fair value. Fair value is estimated utilizing the asset's projected discounted future cash flows. In assessing fair value, we must make assumptions regarding estimated future cash flows, the discount rate and other factors. If the actual performance of the assets becomes less favorable than those projected by management, adjustments to the carrying values of these assets may have a material effect on the consolidated financial statements. Goodwill We evaluate the carrying value of goodwill on December 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances may include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) a decline in macroeconomic conditions, (3) a significant decline in our financial performance or (4) a significant decline in the price of our common stock for a sustained period of time. We perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors. Based on the qualitative assessment performed, considering the aggregation of the relevant factors, we concluded that it is not more likely than not that the fair value of our single reporting unit is less than the carrying value. Therefore, performing a quantitative impairment test was unnecessary. Certain future events and circumstances, including adverse changes in general business and economic conditions in the United States and worldwide and changes in consumer behavior could result in changes to our assumptions and judgments used in the goodwill impairment tests. A downward revision of these assumptions could cause the fair value of the reporting unit to fall below its respective carrying values and a noncash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements. Income Taxes We calculate our current and deferred tax provisions based on estimates and assumptions that may differ from the actual results reflected in our income tax returns filed during the subsequent year. We record adjustments based on filed returns when we have identified and finalized them, which is generally in the third and fourth quarters of the subsequent year. We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that we are more likely than not to realize. We have considered future market growth, forecasted earnings and tax rates, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would increase the valuation allowance and make a corresponding charge to earnings in the period in which we make such determination. Likewise, if we later determine that we are more likely than not to realize the net deferred tax assets, we would reverse the applicable portion of the previously provided valuation allowance. In order for us to realize our deferred tax assets we must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located. Any changes to the realizability of our deferred tax assets or liabilities may have a material impact on our financial statements. We are subject to income taxes in the United States and foreign countries, and we are subject to routine corporate income tax audits in many of these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities are likely 34 Table of Contents to challenge certain positions, which may not be fully sustained. Our income tax expense includes amounts intended to satisfy income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S. GAAP. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates. We maintain reserves for uncertain tax positions, including related interest and penalties. We review our reserves quarterly, and we may adjust such reserves due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, previously unavailable information obtained during the course of an examination, negotiations between tax authorities of different countries concerning our transfer prices, execution of advanced pricing agreements, resolution with respect to individual audit issues, the resolution of entire audits, or the expiration of statutes of limitations. The amounts ultimately paid upon resolution of audits may be materially different from the amounts previously included in our income tax expense and, therefore, may have a material impact on our financial statements. Results of Operations The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated. Year Ended December 31, 2022 2021 Net sales 100.0 % 100.0 % Cost of sales 71.9 71.2 Gross profit 28.1 28.8 Research and development expenses 6.0 5.1 Selling, general and administrative expenses 19.4 19.8 Operating income 2.7 3.9 Interest income (expense), net (0.4) (0.1) Loss on sale of Argentina subsidiary 0.0 (1.0) Other income (expense), net (0.2) (0.1) Income before provision for income taxes 2.1 2.7 Provision for income taxes 2.0 1.8 Net income 0.1 % 0.9 % Year Ended December 31, 2022 ("2022") Compared to Year Ended December 31, 2021 ("2021") Net sales. Net sales for 2022 were $542.8 million, a decrease of 9.8% compared to $601.6 million in 2021. Sales in our subscription broadcast channel were lower than in the prior year due primarily to lower customer demand and component shortages. Sales in our retail channel were also lower than the prior year due to macroeconomic headwinds and the loss of a customer in North America. Gross profit. Gross profit in 2022 was $152.3 million compared to $173.0 million in 2021. Gross profit as a percent of sales decreased to 28.1% in 2022 compared to 28.8% in 2021. Gross profit as a percent of sales was unfavorably impacted by inflationary pressures associated with raw materials and components, freight costs and wages. Partially offsetting these unfavorable impacts were sales price increases on certain products, which were implemented throughout the first two quarters of 2022. Research and development ("R&D") expenses. R&D expenses increased 5.0% to $32.5 million in 2022 from $30.9 million in 2021. The increase in R&D expenses is due to an increase in product development activities as we continue to expand our portfolio of products and focus on growth channels including HVAC, home security and home automation. Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased 11.4% to $105.3 million in 2022 from $118.8 million in 2021, primarily due to a decrease in outside legal expenses related to a specific legal matter. Interest income (expense), net. Net interest expense increased to $2.2 million in 2022 from $0.6 million in 2021 as a result of a higher average loan balance and a higher average interest rate. 35 Table of Contents Loss on sale of Argentina subsidiary. During 2021, we completed the sale of our subsidiary, One For All Argentina S.R.L, recording a loss on sale of $6.1 million. The loss was primarily attributable to the weakening of the Argentinian Peso versus the U.S. Dollar resulting in a loss in equity value in our Argentina subsidiary and ultimately sales proceeds that were significantly less than the invested capital. Other income (expense), net. Other expense, net was $1.0 million in 2022, compared to other expense, net of $0.6 million in 2021, both as a result of net foreign currency losses offset partially by miscellaneous non-operating gains. Income tax expense. Income tax expense was $11.0 million in 2022 compared to $10.8 million in 2021. Our effective tax rate was elevated in both 2022 and 2021 at 96.4% and 67.0%, respectively, as a result of our mix of pre-tax income/loss by jurisdiction, as well as losses incurred in the U.S. which are not benefited due to a valuation allowance. Liquidity and Capital Resources Sources of Cash Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. In addition, we have utilized our revolving line of credit to fund an increased level of share repurchases and past acquisitions. We anticipate that we will continue to utilize both cash flows from operations and our revolving line of credit to support ongoing business operations, capital expenditures, expenses associated with our long-term factory planning strategy, future discretionary share repurchases and potential future acquisitions. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays for at least the next twelve months and for the foreseeable future thereafter; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our various entities. Our liquidity is subject to various risks including the market risks identified in "ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK". December 31, 2022 2021 Cash and cash equivalents $ 66,740 $ 60,813 Available borrowing resources 37,000 66,300 Cash and cash equivalents – At December 31, 2022, we had $6.8 million, $15.6 million, $18.9 million, $13.0 million and $12.4 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality. Our cash balances are held in numerous locations throughout the world. The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to federal and state income taxes and foreign withholding taxes. Additionally, repatriation of some foreign balances is restricted by local laws. Available Borrowing Resources – Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Line") that expires on November 1, 2023. We expect to renew our credit agreement with U.S. Bank, for an additional two years, prior to its expiration. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at December 31, 2022. At December 31, 2022, we had an outstanding balance of $88.0 million on our Credit Line and $37.0 million of availability. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 9" for further information regarding our Credit Line. 36 Table of Contents Uses of Cash Our cash flows were as follows: (In thousands) Year Ended December 31, 2022 Increase (Decrease) Year Ended December 31, 2021 Cash provided by (used for) operating activities $ 10,926 $ (29,357) $ 40,283 Cash provided by (used for) investing activities (21,208) (4,167) (17,041) Cash provided by (used for) financing activities 20,501 42,527 (22,026) Effect of foreign currency exchange rate changes on cash and cash equivalents (4,292) (6,736) 2,444 Net increase (decrease) in cash and cash equivalents $ 5,927 $ 2,267 $ 3,660 December 31, 2022 Increase (Decrease) December 31, 2021 Cash and cash equivalents $ 66,740 $ 5,927 $ 60,813 Working capital 121,567 1,208 120,359 Net cash provided by operating activities was $10.9 million during 2022 compared to $40.3 million during 2021. Net income was $0.4 million in 2022 compared to $5.3 million in 2021. Accounts receivables decreased by $12.8 million during the year ended December 31, 2022 compared to a decrease of $2.0 million during the year ended December 31, 2021 largely due to a reduction in sales during 2022. Inventories increased by $9.9 million during the year ended December 31, 2022 compared to an increase of $15.0 million during the year ended December 31, 2021. We still remain in a unique environment where certain components, prominently ICs, are in short supply. Although this issue is abating, the lead times associated with certain component vendors remain elevated; consequently, when an opportunity arises to procure more than what is needed at a given period of time, we are proceeding with the purchase. Furthermore, certain customers ordered fewer units than originally forecasted, causing our finished goods inventory to be temporarily elevated. Our inventory turns decreased to 2.2 turns at December 31, 2022 compared to 2.9 turns at December 31, 2021. Changes in accounts payable and accrued liabilities resulted in cash outflows of $28.7 million during the year ended December 31, 2022 compared to cash inflows of $0.9 million during the year ended December 31, 2021, largely as a result of lower sales volume resulting in fewer purchases of raw materials and components, excluding, in certain situations, components in short supply. Changes in accrued income taxes resulted in cash outflows of $2.1 million during the year ended December 31, 2022 compared to cash inflows of $2.9 million during the year ended December 31, 2021. Net cash used for investing activities during 2022 was $21.2 million, of which $7.5 million, $0.9 million, $14.0 million and $6.6 million was used for the purchase of our term deposit investment, acquisition of Qterics Inc., capital expenditures, and the development of patents, respectively. Offsetting these amounts was $7.8 million received upon the redemption of our term deposit investment. Net cash used for investing activities during 2021 was $17.0 million, of which $12.6 million and $4.4 million was used for capital expenditures and development of patents, respectively. Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures. We estimate that we will incur between $12.0 million and $15.0 million in 2023 which includes amounts associated with our factory in Vietnam which we anticipate commencing operations in the first half of 2023. Net cash provided by financing activities was $20.5 million during 2022 compared to net cash used for financing activities of $22.0 million during 2021. The primary financing activities in 2022 and 2021 were borrowings and repayments on our line of credit and repurchases of shares of our common stock. Net borrowings on our line of credit were $32.0 million in 2022 and $36.0 million in 2021. During 2022, we purchased 434,107 shares of our common stock at a cost of $13.0 million compared to 1,243,196 shares at a cost of $59.7 million during 2021. Future cash flows used for financing activities are affected by our financing needs which are largely dependent on the level of cash provided by or used in operations and the level of cash used in investing activities. Additionally, potential future repurchases of shares of our common stock will impact our cash flows used for financing activities. Given the recent decrease in the price of our common stock, we may opportunistically purchase shares of our common stock. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 14" for further information regarding our share repurchase programs. 37 Table of Contents Material Cash Commitments – The following table summarizes our material cash commitments and the effect these commitments are expected to have on our cash flows in future periods: Payments Due by Period (In thousands) Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years Credit line (1) $ 88,000 $ 88,000 $ — $ — $ — Inventory purchases 13,708 13,708 — — — Operating lease obligations 23,798 6,841 9,542 4,555 2,860 Property, plant, and equipment purchases 1,742 1,742 — — — Software license 3,468 53 578 946 1,891 Total material cash commitments $ 130,716 $ 110,344 $ 10,120 $ 5,501 $ 4,751 (1) We expect to renew our credit agreement with U.S. Bank, for an additional two years, prior to its expiration. We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing resources, including our Credit Line. Recent Accounting Pronouncements See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for a discussion of recent accounting pronouncements.